The rand breached the psychologically important R18/$ level for the first time in just over three months on Thursday morning, bolstered by positive US data, along with hopes that Chinese stimulus will support commodity prices.
The local currency reached 17.99 rand/dollar in mid-morning trade, but was trading 0.6% flatter at 18.03 rand at 11:50 am. This comes from general dollar weakness after data on Wednesday showed that consumer inflation slowed faster than expected in June. Analysts said that while markets still expect a hike from the US Federal Reserve in July, it seems difficult to justify another hike in September.
“The short-term move on the rand mainly corresponds to recent US inflation data rather than domestic factors,” said IG SA Senior Market Analyst, Shaun Morrison. He said the jump in prices of major export commodities spurred by the expectation of more Chinese stimulus and a lower dollar should have benefited the rand.
Gold was marginally higher at $1,964.80 a troy ounce before midday, while platinum fared better, adding more than 1% to $968.10. Brent crude rose slightly to $80.25 a barrel.
“Reducing inflation, both domestic and external, suggests that we may be approaching the top of monetary tightening cycles in a few major economies, and possibly our own as well,” Morrison said. “This is helping to fuel some of the near-term risks to the trade which will benefit the rand more.”
Earlier on Thursday, data showed that China’s exports fell 12.4% year-on-year in June, the fastest pace since the outbreak of the COVID-19 epidemic three years ago, as analysts lowered their forecasts for the world’s second-largest economy for the rest of the world. year, Reuters reported.
The Standard Bank’s executive director for the rand and spot trading in emerging markets, Eric Butler, said in a morning note that the shift between inflation fears to recession now appeared to be out of balance and more focus was on growth data, particularly in China. “With a very real slowdown there, a great deal of attention is going into the ruling party’s ability to prop up the economy,” he said.
Butler said next week’s Reserve Bank meeting will now be the main focus domestically, and an expected 25 basis point hike is certainly still on the cards. “After the misstep of politics in January, I cannot see Mr. Kaganyago [giving] Until his coveted insurance card next week.
“It could mean that they start cutting sooner than the market expects next year, but you really want to try to make sure that inflation is no longer a raging problem. The economy is going to crash regardless,” Butler said.
TreasuryONE currency analyst André Cilliers said in a morning note that there had been some warnings that markets could be ahead of the Fed’s future interest rate path, and the focus would be on US producer inflation figures – which are due at 14:30 SA. time.
Cellier added that while the rand is likely to track moves in the dollar, the market saw some fairly healthy demand for the greenback late Wednesday as importers benefited from better hedge levels.